Question
In: Finance
Comparing alternative offers Buying a coupon bond –In the primary market, new bond 5 years to...
- Comparing alternative offers
- Buying a coupon bond
–In the primary market, new bond
- 5 years to maturity; pays $800 per year
–Annual interest rate of 8%
- Principal value=face value=$10,000 (repaid at the maturity date)
–In the secondary market
- Pays $600 each year for 5 years and repays principal of $10,000 at the end of the fifth year
Solutions
Expert Solution
Price of primary market bond should be=10000 as yield to
maturity or rate is equal to coupon rate, price is equal to face
value
Price of secondary market bond should
be=600/8%*(1-1/1.05^5)+10000/1.08^5=8429.38572
If secondary market bond is available for less than 8429.39, buy secondary market bond else buy primary market bond
jeff jeffy answered 2 years agoRelated Solutions
A bond offers an annual coupon rate of 5%, with interest paid semiannually. The bond matures...
A bond offers an annual coupon rate of 5%, with interest paid
semiannually. The bond matures in seven years. The price of this
bond per 100 of par value is 112.54, what is its
yield-to-maturity?
A bond offers a coupon rate of 5%, paid semiannually, and has a maturity of 20...
A bond offers a coupon rate of 5%, paid semiannually, and has a
maturity of 20 years. If the current market yield is 8%, what
should be the price of this bond?
5. A bond offers a coupon rate of 7%, paid annually, and has a maturity of...
5. A bond offers a coupon rate of 7%, paid annually, and has a
maturity of 18 years. If the current market yield is 9% (discount
rate), what should be the price of this bond?
6. A bond offers a coupon rate of 10%, paid semiannually, and
has a maturity of 6 years. If the current market yield is 6%, what
should be the price of this bond?
A bond offers a coupon rate of 4%, paid annually, and has a maturity of 5...
A bond offers a coupon rate of 4%, paid annually, and has a
maturity of 5 years. The current market yield is 9%. If market
conditions remain unchanged, what should be the Capital Gains Yield
of the bond?
Bond A is a $1,000, 6% quarterly coupon bond with 5 years to maturity. (a) If...
Bond A is a $1,000, 6% quarterly coupon bond with 5 years to
maturity.
(a) If you bought Bond A today at a yield (APR) of 8%, what is
your purchase price? Is this a
premium or discount bond? Why?
(b) One year later, Bond A's YTM (APR) has gone down to 6% and
you sell it immediately after
receiving the coupon.
(i) What is the current yield?
(ii) What is the capital gains yield?
(iii) What is the one-year...
Bond A is a $1,000, 6% quarterly coupon bond with 5 years to maturity. (a) If...
Bond A is a $1,000, 6% quarterly coupon bond with 5 years to
maturity. (a) If you bought Bond A today at a yield (APR) of 8%,
what is your purchase price? Is this a premium or discount bond?
Why? (b) One year later, Bond A's YTM (APR) has gone down
to 6% and you sell it immediately after receiving the coupon. (i)
What is the current yield? (ii) What is the capital gains
yield? (iii) What is the one-year...
Hens has a 7.4% coupon bond on the market with 9 years to maturity. The bond...
Hens has a 7.4% coupon bond on the market with 9 years to
maturity. The bond makes semi-annual payments and currently sells
for 96% of par (presume $1,000 face/par). What is the current
yield? The Yield to Maturity? The Effective Annual Yield? Please
show full work.
A government bond matures in 7 years, makes annual coupon payments of 5.1% and offers a...
A government bond matures in 7 years, makes annual coupon
payments of 5.1% and offers a yield of 3.1% annually compounded.
Assume face value is $1,000. (Do not round intermediate
calculations. Enter your answer as a percent rounded to 2 decimal
places.)
a. Suppose that one year later the bond still yields 3.1%. What
return has the bondholder earned over the 12-month period?
b. Now suppose that the bond yields 2.1% at the end of the year.
What return did...
Elena buys a Canadian 30 year annual coupon bond in the primary market for $1000. The...
Elena buys a Canadian 30 year annual coupon bond in the primary
market for $1000. The bond has a yield to maturity that reflects a
world risk free rate of 4% and a Canadian risk premium of 6%.
Immediately before her 4th
coupon payment, she decides to sell the bond in the secondary
market. At the time of sale, the world economy is growing and
Canada is the G7 country showing the strongest growth. The world
risk free rate has...
A 5% 20-year semi-annual bond offers an YTM of 5%. If the market interest rate will...
A 5% 20-year semi-annual bond offers an YTM of 5%. If the market
interest rate will increase to 6.5% in one year (there will 19
years left to maturity then), what is the change in price that the
bond will experience in dollars during the next year?
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Part A. Outline and explain all the VARIABLES and FACTORS that determine valuation and valuation analysis...
- Study the file polygon.h. It contains the header file for a class of regular polygons. Implement...
- what challenges can myths and stereotypes create for american indians?
- Date accuracy is very important because dates are used for discounts, payment terms and many reports....
- How many milliliters of concentrated hydrochloric acid solution (36.0% HCl by mass, density = 1.18 g/mL)...
- How does the rotating membership of the FOMC work? Why does the president of New York's...
- A gym owner is considering opening a location on the other side of town. The new...
ADVERTISEMENT